If you don't have the money for a down payment, I don't think a second home is a viable choice. Your equity cannot be realized until you sell your present house, I wouldn't think.

I'm sure there are more knowledgible people on this site that can give you a more detailed answer.

We recently refinanced our primary residence, took out cash and used it to pay off our mortgage on a 2nd home. (It had a higher rate.) If you really want to do that, it's one way to access that equity. Think long and hard though - two house are twice as much work as one. Every spring I think about selling our 2nd home.

What you are talking about doing is one of the reasons that many people ended up losing their homes.

Yes, you can get equity loans on your house. However, you are putting your home at risk. If you can't pay the increased 2nd mortgage payment, they will foreclose on your existing home.

If owning a second home in a dream, you should not be considering risking your first home to get a second. What you need to do is save up enough money (cash, not equity) for a down payment on a second home. If you don't think you can do that, than you can't afford a second home yet.

Hi Ilover,

Our lifelong dream is to own a vacation home. We have approx $200k in equity in our primary residence.
We don't' have much $ to buy the second home. We sacrifice property size and storage in our primary home in order to keep the equity (and not use it to upgrade to a larger home)..... so that we can have purchasing power.
How does this work?

How important to you is your dream of owning a vacation home?
Have you considered all the angles around what that would mean to you & your family?
All the pros and cons? (There are certainly plenty of both, as with anything, of course!)

Is this equity an advantage in buying the 2nd home?

Of course! Equity is equity is equity... it is part of yoru net worth, and part of what you are considering converting into an additional asset (the vacation home.)

I don't want to jeopardize our primary residence. How do we not do that?

You have no way to not do that. Your primary residence is already in a fair amount of risk because you're short of reserves and have transferred your safety funds into accumulations of real estate equity.

It sounds to me like you & family MAY benefit from some 'values explorations'... what's REALLY most important to you, and how do you make sure you're getting it (and not sabotaging it) along the way.

Luck!
Dave Donhoff
Leverage Planner

I wouldn't risk this. Besides, are you SURE you want to own a 'vacation home'? More taxes, upkeep, insurance -- travel to and from, and you are tied to just one vacation location for years?

We own a vacation rental condo on Maui. That's been a good deal because it carries itself -- well, maybe not 2009 or 2010, but it has and will again. It's our choice whether we go there ourselves or rent it and use the proceeds to go somewhere else once in a while. We employ a rental management company to oversee the place.

"I don't want to jeopardize our primary residence."

Then do not borrow against your equity.

A vacation home is expensive proposition. It's not just a matter of buying. It's up keep, taxes, another set of household bills. It's extra laundry, money for driving to and from, it's spending time opening the place up and closing it down. It's another set of neighbors to deal with.
If you are having trouble affording one home you sure as heck can't afford another.
My suggestion would be to rent your dream. Save your money and for a few weeks a year you can live your dream without risking your primary residence. All the fun without the work!

Have you considered selling your current home and buying or building something that is closer to what you want in a vacation home? We chose to live in a vacation destination area and built on a property that many would consider vacation home worthy. I do not want a second home. I don't have enough time to enjoy my first home. Unless you are well off your primary residence inevitably gets neglected when you have a vacation home (assuming you use it). Maybe you wouldn't have to change jobs and move far, just find a property that is closer to your "dream". Maybe on a pond, river, etc., or put in a pool (or has a community pool).

Just throwing it out there as another option.

I like the ideas in the post from sue36. I'd even expand on them. Maybe you'd be happier in a different family home -- not necessarily in a vacation locale, just one where you wouldn't feel the need to get away from it!

We just did this! But we had closer to $500k equity in primary home. Refinancing to pay cash for our vacation home. Still have $300k equity in primary home plus $200k vacation home equity. Have a new longer mortgage length with slightly higher pmt. Can sell vacation home in future if needed, all cash to us. Aware of all the taxes and upkeep and we are able to afford it. Are we crazy?

Please talk to your tax advisor before you take that amount of equity out of your house. Interest on home equity loans in excess of $100,000 that are used for a purpose other than improving that home is probably not deductible on schedule A. And it may throw you into AMT.

I understand that it is your life long dream to own a vacation home. Definitely when you go to your vacation home you want to be relaxed and be away from worries for just a week or two. So what I'm pointing here is if your money is not yet enough to buy your life long dream vacation home, don't be in a hurry stick to your goal or plan. Don't sacrifice your first house in order to get this vacation home. Take your time and think million times. Thanks.